4-2 Why would the inventory turnover ratio be more important for someone analyzing a grocery store chain than an insurance company?
The inventory turnover ratio is important to a grocery store because of the much larger inventory required and because some of that inventory is perishable. An insurance company would have no inventory to speak of since its line of business is selling insurance policies or other similar financial products--contracts written on paper and entered into between the company and the insured. This question demonstrates that the student should not take a routine approach to financial analysis but rather should examine the business that he or she is analyzing.
4-8 why is it sometimes misleading to compare a company’s financial ratios with those other firms that operates in the same industry?
It can be misleading if you don't know how the other companies developed their ratios. Companies will sometimes manipulate numbers or group them in a specific manner that will result in better ratios. Before you compare ratios, make sure you know the details behind the ratios so you know if you are comparing the same thing.
5-3: Is an initial public offering an example of a primary or a secondary market transaction?
An initial public offering (IPO) is an example of a primary market transaction.
Primary market = Market for new issues of securities. A market is primary if the proceeds of sales go to the issuer of the securities sold.
Secondary market = Market where securities are traded after they are initially offered in the primary market.
5-8: Identify and briefly compare the two leading stock exchanges in the United States today.
NASDAQ is an automated quotation system that reports on the trading of domestic securities not listed on the regular stock exchanges. It publishes two composite price indexes daily as well as bank, insurance,...
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